Proper test required when making performance claims

While performance claims can be an effective way of advertising a product and comparing it to competitors, the Competition Act prohibits making performance claims not based on an adequate and proper test, Toronto competition lawyer Michael Osborne writes in Law Times.

Two recent cases highlight the dangers inherent in this provision for advertisers, writes Osborne, partner with Affleck Greene McMurtry LLP, referring to one case involving Rogers Communications Inc. and another dealing with Hyundai Motor Co. and Kia Motors Co.

“Rogers’ claims that customers of its Chatr brand experienced fewer dropped calls than those of the new entrants were not false or misleading, the Ontario Superior Court held recently in dismissing, in large part, an application by the commissioner of competition,” writes Osborne.

“The court did find, however, that Rogers had breached the performance claims provision of the Competition Act, because it did not conduct adequate and proper tests before making certain representations in Calgary, Edmonton, and Montreal.”

The article says the case raises three important lessons: a performance claim cannot be based even on proven technical advantages; tests must be conducted before making performance claims; and the level of confidence in test results must be considered.

The case involving Hyundai Motor Co. and Kia Motors Co. illustrates the advantages and disadvantages of voluntarily disclosing an error in a performance claim, writes Osborne.

“Hyundai and Kia advertised fuel-consumption figures based on tests conducted in Korea. They later discovered procedural errors in the testing that invalidated the results,” the article says.

The two carmakers chose to go public with the error and compensate consumers, and also reported themselves to the Competition Bureau.

This led to, “a consent agreement that formalized the compensation program they had already announced. The bureau agreed that further restitution or notice were not necessary nor were administrative monetary penalties appropriate,” writes Osborne.

The advantages of self-reporting and voluntary compensation include lenient treatment from authorities; more control over compensation for consumers, including the ability to fashion a plan that promotes loyalty; and greater ability to manage the public perception and influence how the media will treat the story, the article says.

“But the disadvantages include the bureau’s desire to formalize the arrangement into a consent agreement that creates a record it might use against the company if it experiences another inaccurate performance claim and class action liability,” writes Osborne.